Dylan Grice On Ignoring The Economists' Perpetuation Of The Illusion Of Control, And Instead Focusing On What We Do Know

Tyler Durden's picture

In his most recent Popular Delusions piece, SocGen's brilliant Dylan Grice once again rightfully demolishes the shamanic rituals of the "alternate universe" theory, better known as economics, ridicules economists for the hack priests of financial paganism they are, and concludes what may be the key principle of modern cynical thought: "Some have said that the key risk investors face today is of ‘policy error’. But isn’t that always the key risk? Financial history is one long series of ‘policy errors’ and while policy makers labour under the delusion that they know the unknowable it will remain so. All investors can do is try to see the funny side, and focus on things we can know." Incidentally, focusing on the funny side is precisely what Zero Hedge has been doing for just over a year and a half (much to the dismay of our ever growing detactors and critics). Add some intelligence to the discourse, and one gets in 18 months more actual policy changes (Fed Audit, the end of Goldman Prop (a topic we were digging into long before Volcker was resurrected from the dead), banning Flash trading, inquiry into High Frequency Trading and daily market manipulation), more than others who in lengthy, rambling, somnolent, rants and essays have achieved in decades. Since mixing humor and "focusing on what we know" is all we know, we will continue doing it, until we succeed in terminally discrediting the most worthless voodoo "science" ever conceived by man - economics, and overturning its one most destructive construct - the central bank and the implicit central planning that goes side by side. But in the meantime, here is Dylan's most recent fusion of humor and scathing condemnation of the idiots who will gladly destroy the US economy in their pursuit of a theory which is proven to be more and more flawed, fake and destructive with each passing day.

Dylan on the basis of the illusion of control:

The pedestrian ‘push’ buttons at New York’s intersections don’t actually work. They were deactivated in the 1970s when computer-controlled automatic traffic signals were installed but left in place because removing them is too costly. Apparently most ‘close door’ buttons in lifts don’t work either. But give us a button and we’ll press it, not because the button works but because the sense of being in control makes us feel good (when subjects are crammed into a lift for example, those closest to the controls show lower stress levels). Feeling in control doesn’t mean that we are in control, but who cares? As Slartibartfast said in Hitchiker’s Guide to the Galaxy, “I’d rather be happy than right!”

Slartibartfast would have been a splendid economist. Squabbling amongst themselves in the press - when fiscal retrenchment should proceed; where monetary policy should go from here; how to avoid deflation; etc – they use loaded words such as “optimal”, “equilibrium” and “calibration”, language which gives the impression of learned discussion between experts who understand their subject matter. In fact, the overwhelming evidence of regular financial calamity (which has unambiguously increased as central banks have gained influence, see chart below) clearly demonstrates that they do not. But that doesn’t deter our brightest economists from happily believing their own propaganda. They really think they’re in control!

Let them press their buttons. Let them believe they know the unknowable if, like Slartibartfast, it makes them happy. Frankly, there’s not much we can do, other than allow the occasional giggle and avoid making the same mistake of failing to accept that some things just can’t be known. Our effort and energy should focus on what can be.

On the creation of ad hoc theories to explain a constantly changing reality, on their endless inability to predict even one day into the future, and on covering up that economists are really just the most insecure, unintelligent, overrated hacks ever produced by Ivy League universities.

A famous MIT economist earnestly warns on a prominent website that “the US may be near a liquidity trap” where monetary policy may no longer be ‘effective’ (whatever that means: effective at what, inflating bubbles?) Fear not though, and let the trumpets sound out, for our macroeconomists are riding to the rescue “ … the ineffectiveness of monetary policy can be turned on its head by using money creation to finance fiscal policy stimulus – such as a large but temporary cut in sales taxes. To avoid future problems, the Treasury could commit to transfer resources back to the Fed when the economy is back to full employment.” This is a brilliant solution … it’s smart … it might even be sexy. But there’s one glitch - how do we know when we’re at full employment? Didn’t the Irish think they were at sustainable and full employment in 2007, only to discover that they had been dangerously overheating?

Not to worry, another report on my desk warns against premature austerity. To give its argument added weight it quotes Keynes: “The boom, not the slump is the right time for austerity.” The authors are concerned that mistimed government retrenchment might cause more unemployment than necessary. Who would argue with such sentiments? Who wants to see high unemployment? But how will they know when the economy is booming? Knowing when it collapses is easy enough: spikes in unemployment hurt; market panics hurt … but booms? Like full employment; how do we know when we’re there?

During the boom, Ben Bernanke didn’t know it was a boom and dismissed the very notion of a US housing bubble. During the boom, the clever economists at the helm, who today diagnose the economy’s ills and confidently suggest its remedies, said then that the cycle had been tamed, that leverage which was once dangerous was now prudent. During the boom, the UK’s Chancellor boasted that he’d “put an end to boom and bust.” During the boom, the few lone voices pointing out the dangers of the credit inflation were dismissed as “perma bears” During the boom, everyone thought the boom was normal, leading us to where we are today. There was certainly no talk of ‘austerity.’

...On what we don't know (or at least what we should admit to those reading us, we have no clue). And yes, this is directed solely at Paul Krugman, and all the other prize Keynesianites of the world.

Never mind. Keynesian poster boy and Nobel prize winner Paul Krugman gushes over Richard Koo’s conclusion that even though Japan’s level of nominal GDP today is lower than it was in 1992, the nearly two decades of fiscal stimulus was the most successful in history, for without it Japan would have experienced a much worse decline! Conclusion? We need more fiscal stimulus to get the economy back to ‘full employment’… forget for now that no one has, has ever had, or is ever likely to have any accurate idea of where ‘full employment’ is: macroeconomists are now basing policy recommendations on intrinsically speculative and unprovable counterfactuals! I understand the intuition, but he can’t know that Japan’s stimulus has improved the lot of its people, or indeed what the full consequences of the stimulus are.

I could go on … the FT reported on 1 September (see Greece debt default seen as ‘unlikley’ – FT.com) the IMF estimates of the UK and US’s “fiscal space” and the conclusion that they can increase their debt by another 50% of GDP without a crisis. I hope they’re right, but their guess is as good as my cat’s. There just is no “trigger” beyond which debt crises happen (chart above) and we have no idea how much “fiscal space” governments have until they have none ...

...On what we do know, or what we should do with the things we have some control over...and not just a Keynesian illusion thereof:

But what can we do? Chuckle, and focus on doing homework in areas where we at least have a chance of knowing. We know, for example, that scarcity is developing in certain commodity markets and that China’s age of self sufficiency in things like coal and grain is probably over. We know that historically when a large producer has turned to world markets those markets have become vulnerable to violent upward spikes. We also know that wars have frequently been fought over scarce resources and that China now has more fighter ships than the US.

We know that the developed economies’ demography is set to decline and that while we’re not sure what the effect will be, that Japan’s experience isn’t encouraging. We know that overstretched government balance sheets have historically posed an inflation risk but that bond yields are at levels rarely seen in the past few centuries, let alone decades. We know that entry valuations determine long-run returns and so bonds are likely to be an appalling investment here. We also know that while equities still aren’t cheap in an absolute sense they’re as cheap as they’ve been since the crash of 2008, so there are bound to be opportunities within these markets for providing decent long-run returns (see chart below). And we know that as we’re exploring the many (hopefully) profitable areas in the coming months, the Slartibartfasts will be in their fool’s paradise, pressing their buttons and in their own tragi-comic way, adding to the richness of the whole experience.

And people wonder why we don't offer wholsale policy suggestions - indeed, what is the point when the entire house of cards is doomed by daily gyrations as the entire market and all investors can't focus their attention on anything more than a few seconds into the future, even as the reality behind the flashing stock tickers is turning darker with each passing day... Just sit back, relax, and watch the show as it unfolds. It will be hilarious from start to (imminent) finish.

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cossack55's picture

"discrediting the most worthless science known to man..."

I thought you were referring to Political Science.  Maybe a tie?


Speaking of laughs, check out The Daily Bail.com  British TV Bird and Fortune discussing CDOs, CDSs, and SIVs.  I would leave the link if I were bright enough to figure out how.

RickFromGeorgetown's picture

Excellent article as usual. It really is getting scary out there (you can only buy so much gold <smile>).

Have a great Labor Day weekend,


RockyRacoon's picture

You have hit on it, Rick.  More and more I see things in ounces of silver.  Buy that parka at the local sports shop?  Hmmm.   That's 2 ounces of silver.   Nah, I'll take the silver.   Buy a new flat screen 50 inch TV?  Nah, that's an ounce of gold -- almost.  Throw in some cycling togs and I've got the cash for the gold.   It's all in perception.  Funny how that changes over time.

bugs_'s picture

The "economics" mentioned is MACRO economics.

All schools of MACRO seem to be "out of order" LOL.

If there is any good news it is on the MICRO side.  All those little micros are cutting back, paying off their debt to Pharaoh, and getting ready for harder times.

Spitzer's picture

No, the Austrian school is not "out if order".

chrisina's picture

that's because you don't understand its assumptions

Austrian school is as junk as the rest


The fundamental praexological axiom that preferences are revealed in action is just as voodoo as the basis of neoclassical (keynesian and monetarist) economics. That you prefer a product or service at a given price doesn't mean that you wouldn't at a different price.

The logical deduction that collective action is inefficient is just circular reasoning that tend to appeal to libertarians.

psychobilly's picture

"The logical deduction that collective action is inefficient  is just circular reasoning that tend to appeal to libertarians."

On the contrary: It is self-evident that an anthill for example is very efficient. You can really get some shit done with lots of disposable slaves. 

CrockettAlmanac.com's picture

The logical deduction that collective action is inefficient is just circular reasoning that tend to appeal to libertarians.

Libertarians have no problem with voluntary collective action. Such is the basis for most human progress.


Spitzer's picture

Keynesianism explained in under 30 seconds


breezer1's picture

i remember a clown who's inflated ego led him to titled positions until one day he published an oil and gas report. it was so full of bullshit he became an embarrassment to the organization and was removed, or promoted. if i had an employee who shovelled that much crap he /she would only do it once. 

anyway, it reminded me of a carson show many years ago. carson once had a guest who rode an elephant down madison avenue draped with a large banner advertising something. he did it without a permit from the city and when arrested he quickly made bail and paid a large fine when he pled guilty. of course the amount he received from the advertiser was much more. it made the prime time news.

the next guest was an economist who was really full of himself and bullshit. carson showed  that he was impressed with his knowledge when he admitted that it was all too complicated for him. thats when the elephant guy asked the economist if this wasn't following along with degroot's theory . the economist said ' yes it was'.

after the next commercial the elephant guy sat alone next to carson when he told johnney that he didn't know who this degroot fellow was but it sounded good. the economist's life changed drastically that night. we need more elephant riders.

Village Idiot's picture

Great story. bring on the elephant riders.

snowball777's picture


Pretty sure he didn't waste his time with anything as inane as economics; some people can do real math.

LostWages's picture

This time is different.  We just don't know what the difference will look like.

The mountains of debt the sovereigns issued is "insured" many times over by the CDS casino.  Yes, this time is different all right, we have taken debt levels to new highs and are able to bet against it.

When the first domino goes over, the fun begins.  Those who bet on the collapse may find difficulty collecting their winnings.

Dr. Sandi's picture

When the first domino goes over, the fun begins.  Those who bet on the collapse may find difficulty collecting their winnings.

Seems to me that the first domino has already flipped, as has the second and maybe the third.

I don't believe this baby's coming down with a crash. No, it's coming down nice and slow so we can all enjoy it.

Know anybody who lost their job? How about somebody who lost their home? How about some people whose 401k plan is so deflated that they can't retire anymore?

How about those guys living under the freeway bridge? Or the MBA who's managing a burger joint because the bank where she worked got gobbled up by the big boys?

Don't sit back and wait for the NYT or Fux News to tell us the collapse happened at 3:59 this afternoon. It's going on now. You're soaking in it.

Each of us will have a different experience, just like the highly popular 'Depression' that we look back at so nostalgically.

Some of us will do okay, while a lot of us are going to lose wealth, health and maybe even our lives. Or watch loved ones die from even more inadequate health care than they're getting now.

Prepare for it the best you can. Figure out how your family is going to live with a lower profile if gasoline hits $10 a gallon, the county triples your property tax to make up for nobody else paying theirs, intermittent deliveries to your favorite food store because the diesel is $12 a gallon and truck drivers can't afford to drive.

Collapse is a process, not an event. But there WILL be a lot of nasty events that will figure prominently for their entertainment value as the tent comes down.

Hulk's picture

You have accurately described things so far, but as GL has described, the end (hyperinflation) could come fast. be prepared to pick up assets when there is blood in the streets...

grunion's picture

Some tell me that relates to buzzards.

I have always found that statement greedy and elitist. Gee, I wonder why?

Hulk's picture

Its just reality grunion, buzzards exist for good reason.

BTW, if GL's scenario occurs, I'll be buying up valuable pasture land, adding to our already existing pasture farm. Folks will benefit by a much higher quality of food....which is in high demand at this time

Landrew's picture

How do I love thee, let me count the ways.

1. Understanding this process isn't signaled by a point in time.

2. Energy effects everything.

3. There is hope if you prepare.

4. Still finding humor in life:)

AssFire's picture

Soon we will no longer have the luxury of meddling in other nation's affairs.


knukles's picture

Great.  Just fucking great.
So instead of meddling in other nations affairs, they'll spend full time meddling in our own. 
Now that's a peachy, uplifting, altruistic, noble vision if I've ever seen one. 
Where do we move?

RockyRacoon's picture

Where do we move?

To the country that we last stopped dicking with.  They will prosper.

We will have milked them dry so the only way to go will be up.

Dr. Sandi's picture

Where do we move?


To the country that we last stopped dicking with.  They will prosper.

We will have milked them dry so the only way to go will be up.

If memory serves, correctly, that would be "The Shores of Tripoli."


So this means an exodus to Morocco to avoid the blowback? Damn, and I thought Utah sucked, but Morocco? Ewwwww!

RockyRacoon's picture

I guess it becomes, "Anywhere but here", Doc.

Snidley Whipsnae's picture

'Owners of a Chinese Restaurant in Salem Or are nearly BK, Quiznos next door closed 6 months ago... Almost all patrons were from the ranks of 'public unionized employees', in public buildings across the street and in surrounding area.'...Mish missed the real point here in his blog.

The cutbacks in spending in the private sector are coming from all segments of the employeed and the unemployeed.

The public sector workforce in Salem has not seen major cuts in their ranks. So, what is wrong with biz at the small restaurants?

A topic that is rarely discussed by 'economists'...fear created by the indecision of economists and the Fed. Fear of new fiscal policy decisions that might come without warning.

The economists have accomplished one thing. They have scared the crap out of ordinary people. Fear of the unknown future decisions by the Fed and by fiscal policy is frightening the people (the would be consumers). People that know nothing about economics sense that the clowns in charge of this circus don't have a clue what they are doing...except stealing from the poor to bouy the wealthy.

Gold... The last retreat to safety in a world of economists gone mad. 


VeloSpade's picture

I went to get a haircut the other day.  The normal place I go down the street seemed kind of busy.  I didn't feel like waiting so I ventured off to the other side of town (that I had not seen in a couple years) in search of another barber.  I drove into 3 different shopping plaza's before finding a place to get my haircut.  Two of the three were 90% vacant, while the other about a 1/3 full.  The neighboring mall lost one of it's major anchor department stores and appears to have lost about 40% of its other stores.  Ghost Town USA, coming soon to a city near you?

Dr. Sandi's picture

You want a haircut?

Buy bonds!

Fred Hayek's picture

On top of the immense hubris of economists and those who completely trust them one often finds amazing ignorance.

Geithner who received an M.A. in International Economics is quoted in the most recent issue of The New Republic as saying, during a phone call with representatives of Germany, who were refusing to drop austerity plans in favor of a stimulus spend-a-rama, that the germans sounded "a little bit like Hoover".

That Hoover ran unprecedented peace time deficits and interfered massively in the market, including signing the infamous Smoot-Hawley tariff bill, is , apparently, unknown to Turbo Tax Timmy, holder of an M.A. in international economics.

Why bother with knowledge when you can just go straight to pretensions, eh Timmy?

lizzy36's picture

Geithner's time and the interests of the USA would be better served if he had dialed a 1-900 number. 

fajensen's picture

Turbo Tax Timmy, holder of an M.A. in international economics.

Maybe he got it from a mail order university?

knukles's picture

Guys, it's not the economists who're responsible for this nightmare.  Economists merely advise.  Politicians debate, consider, weigh evidence and as mature, logical and responsible elected representatives, legislate in the best interests of thier populace.

Spitzer's picture

Yes in is the economists who are responsable, the politicians expect that the economists actually have something right.

jm's picture

The bottom line is this.  In any social construction, all predictions fail given enough time.  The purveyors of the bullshit known as economic theory, Keynesian or Austrian or whatever, that do not acknowledge the limits of the theory are the problem.  If there is no honesty about the car lot full of bright shiny Yugos, the theories become just pissing contests concealed in jargon. 

The dishonesty makes it often about self-serving lying and delusion.  There are some who make fanatics out of themselves and others.  There are some that supply advice that justifies the status quo; at worst these get a cut of the action by justifying predator behavior on the governed.  On the other side of the issue is a fragmentation of alternative theories designed to enable a pack of wannabee replacements that at best want to “fix” everything.  At worst these want to impose a fanatical vision on the world and call it love of humanity.


Spitzer's picture

bullshit known as economic theory, Keynesian or Austrian


You are lucky you said that in cyber space because if you didn't, I would have punched you out.

Don't ever equate keynesianism with Austrain economics again.

jm's picture

This is the fanaticism I am talking about.

chrisina's picture

try to use your brain instad of your fists.


It's amazing that so many anti-social libetarians who hate government action equate the failure of keynesianism with the validation of such junk science as austrian economics

murray's picture

man, i junked you because this does not make sense.


austrian economic theory does not seek any imposition on human behavior but rather posits that a market-determined price is always the optimal regulator.



jm's picture

People learn and adapt. Making predictions about people or how their institutions behave given uncertain conditions will ultimately become wrong.  "Market determined" prices are dependent upon human legislated laws, instituitions that interpret and enforce those laws, and interplay between people playing by the rules and those that break the rules.   

That is just what runs in the background.  People and even Goldman Sachs always have limited information about the world, and they can interpret the information incorrectly for long periods of time.  Many are too busy saying how the world should be without understanding how one can practically get there from here.  This is the imposition I am talking about.  It is not far from Karl Marx when it becomes like evangelism. 

I'm not ripping any particular theory over another, although some are better than others. Everyone theorizes to some degree... it's how we think.  Just saying direct observation with all its complications is primary.

Bam_Man's picture

I'm not ripping any particular theory over another, although some are better than others.

The one that I think deserves a good ripping is "game theory".

jm's picture

Just as with game theory, so with everything.  One counterexample blows the whole thing up.  Freedom House ranks Mali as a free libertarian society.  And yet the citizens remain among the poorest in the world, even for the "developing" world.

It is good that Mali has freedom.  Freedom is a desirable end in itself; Mali also has a long history of being a major center for Islamic scholarship in the Middle Ages.

That doesn't make laissez faire always work.

psychobilly's picture

"Freedom House ranks Mali as a free libertarian society."

Nonsense.  I seriously doubt you can even find the word "libertarian" anywhere in Freedom House's literature.

Beware of missionaries from the United States selling "freedom and democracy."  Even if done with the best of intentions (cough, bullshit, cough), enfranchising the uncivilized majority rarely if ever leads in practice to more liberty.


Freedom House is a CIA front.

chrisina's picture

and how do you show that market-determined price is the optimal regulator?


circular reasoning trying to validate absolute moral philosophy disguised as opposition to collective action... 

RichyRoo's picture

makes sense to me, interesting how just by criticising Austrian economics you recieved a threat of violence. I understand that illustrates your point perfectly. I was thinking about these topics last night, its funny how coincidences like that happen :)

grunion's picture

I knew it! Complete congressional failure to do due diligence...lazy, lazy, lazy.


Easy now Bronco...

Bazza McKenzie's picture

Yes, the primary problem is with politicians.  Most cannot abide the idea that the best thing they can do for the economy is get out of the way (maybe like the founders indicated in the constitution they drafted) and let people look after their lives and their business.

Most politicians have to insist they benefit society by continuously tinkering with it.  Otherwise how would they justify their existence, pay, perks and power and more importantly justify setting the rules to buy votes to get into office and stay there.

If that is the disposition of politicians, any economist who comes and tells them they need to keep their hands off will have few political patrons, no public outlets in the politically aligned mass media, no university appointments.

I appreciate this means most economists who ply their trade in offering public policy advice are prostitutes, but if the pay is good enough, there are always prostitutes in any field (remarkably like the AGW scam, where the advocates are mainly on the public payroll and the scientific critics are retired or amateurs [not necessarily in terms of knowledge and analysis]).

But since it is the politicians, political parties and aligned media who are paying (usually with the taxpayers' money) for advice, they are always going to find/create someone who will give the advice they want.